In the Annual Economic Report for 1990itwas noted that the authorities had adopted a"freshapproach" in economic policy, placing more emphasis on structural deficiencies in the economy and concentrating on formulating medium-term and long-term economic strategies. Within a framework of a market-orientated system these strategies seek to eliminate structural distortions and to establish realistic relative prices reflecting the scarcities of the various means of production and productive resources. In order to realise these objectives, a restrictive monetary and fiscal policy is inter alia essential. The Reserve Bank therefore gradually reduced the guideline range for the growth in money supply and allowed the prime overdraft rate of banking institutions to rise from12 ½per cent at the end of 1987 to 21 per cent in October 1989. Similarly, the Exchequer deficit before borrowing and debt repayment relative to the gross domestic product was decreased from 5,6 per cent in 1987/88 to 0,6 per cent in 1989/90.Recently a slightly more expansionary fiscal policy stance was adopted by the authorities in the Budget for 1991/92, which seemed justified in the light of the relatively depressed economic conditions and the pressing need for certain social expenditures. The stimulatory impact of the Budget was raised further by off-budget expenditures out of the financial surpluses of previous fiscal years and the announcement by the State President that a further R1 billion would be spent on socio-economic upliftment in disadvantaged communities.Monetary discipline was maintained by the authorities to create a stable financial environment that will be conducive to sustainable economic growth. In accordance with this approach the Reserve Bank has maintained relatively stable nominal and high real interest rates in South Africa throughout 1990 and the first half of 1991, and Bank rate was adjusted downwards by only one percentage point from 18 to 17 per cent from 11 March 1991. This was justified in view of the progress made in restricting the rate of monetary expansion. Considerable success was achieved over the past eighteen months in bringing the rates of increase in the money supply and in bank credit down to lower levels. Recently the statistical measure of the growth rates in these aggregates has been distorted by reintermediation, following the implementation of the Deposit-taking Institutions Act in February 1991.However, monetary policy was not applied in an excessively restrictive manner and real positive interest rates in South Africa were maintained at a level considerably lower than in many other countries pursuing similar policies. This policy stance in conjunction with a continued strong international demand for South African goods, supported economic activity and contributed to a relatively mild but nevertheless extended downturn in economic activity over the past nearly2 ½years. Real gross domestic product accordingly contracted at an annual rate of only approximately ½ per cent from the first quarter of 1989 to the second quarter of 1991-i.e. at a substantially lower rate than the decreases of 3 per cent and 2 per cent in the previous two economic downswings.In addition to the continued strong growth in merchandise exports, the mildness of the current economic downswing was further supported by a firm demand for consumer goods and services and a relatively small contraction in real fixed capital expenditure. In contrast to these developments, a considerable destocking took place which brought inventories down to new record-low levels. In the first half of 1991 the downturn in economic activity deepened considerably when the rate of decrease in fixed investment accelerated and consumer demand tapered off, leading to a decline in real private consumption expenditure in the second quarter of the year.The downturn in economic activity was also accompanied by a marked decrease in the standard of living of the nation as measured by changes in the real gross national income. In particular, a considerable deterioration in the term